State Business Confidence Steady, Hiring Plans Improve Third Quarter 2014 Outlook
The Alabama Business Confidence Index™ (ABCI) was stable at 55.5 in the third quarter of 2014 and indicates moderate Change from optimism statewide. Forecasts for the Alabama economy Alabama Q2 2014 and industry hiring improved. While other indexes fell back 55.5 ‐0.1 ABCI modestly, they continue to show a positive outlook. 51.4 ‐1.1 An Alabama economy index of 59.4 forecasts a strong National Economy uptick in activity, while the U.S. economy reading of 51.4 59.4 1.0 Alabama Economy indicates slight improvement. The gap between the state 59.7 ‐1.9 Industry Sales and national indexes widened to 8.0 points. This makes 40 consecutive quarters of higher state than national outlooks. Industry Profits 54.9 ‐1.6 Panelists in most industries expect robust growth in 54.9 3.8 Industry Hiring sales with moderate profit gains in the third quarter. An improved outlook for hiring is the important story of the 52.6 ‐1.1 Capital Expenditures third quarter survey as the index rose 3.8 points to 54.9. Index above 50 indicates positive outlook. Capital expenditure gains are likely to continue to be Index below 50 indicates negative outlook. modest, with some industries still cutting back. Most industry outlooks rose this quarter. Optimism Business Environment Expectations is highest in construction and manufacturing, and in the Q3 2014 compared to Q2 2014 transportation, information, and utilities sector. Sentiment is weak but improved in retail trade and healthcare. The Outlook for U.S. Economic Growth Stays Positive Alabama outlook for professional services turned positive. business executives expect the U.S. economy to expand at All four large metro areas registered positive outlooks. a slightly slower pace than last quarter—the national Montgomery remains the most optimistic with an ABCI of economy index slipped 1.1 points to 51.4 on the third 59.0. Sentiment in the Birmingham‐Hoover metro is stable quarter ABCI survey. That’s in line with the forecast from at 56.9, while the Mobile outlook slipped to a state‐average the National Association of Business Economists for second 55.5. Huntsville sentiment is the most improved at 53.4. quarter GDP growth boosted to 3.5 percent by pent‐up first quarter demand and third quarter growth of 3.1 percent. TM
Almost half of panelists expect the U.S. economy to perform about the same as last quarter and 30.6 percent 100
forecast stronger growth. While 20.9 percent of firms think 90
the economy could be worse this quarter, that’s the lowest negative in more than three years. Every Alabama industry 80
except trade sees national economic activity as at least 70
neutral for their business. ABCI Index
60
50.2
50
48.3 45.4 47.7
52.9 51.9 51.2
National and Alabama Economy 55.6 55.5
Much Better
40
2.0
0.8
Alabama
44.8
Somewhat Better
29.8
30
41.9
Remain the Same
20
Much Worse
0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2013 2014
Q3
+ 48.4
11.3
16.1
Somewhat Worse
10
National
0.0
4.8
Percent Third Quarter 2014, Volume 13, Number 3
U.S. and Alabama Economy Prospects for the Alabama Economy Look Strong Confidence in the Alabama economy improved for a second straight quarter. The Alabama economy index rose one point to 59.4. That’s 8.0 points above the U.S. outlook and 4.2 points higher than expectations for the state’s economy in the third quarter a year ago. Almost 47 percent of panelists have a better outlook for the current quarter, while around 42 percent foresee growth continuing at the second quarter pace. Recent economic data supports this optimism—
nonfarm employment is above year‐ago levels in each of the first six months of 2014. Still, labor force and total employment trends are weak and stronger job growth is needed to boost the economy. Job gains continue in auto‐
motive and aerospace manufacturing. A rebound in the state’s professional, scientific, and technical services sector is a welcome sign of recovery from federal funding cuts. Expectations versus Prior Quarter 60
Index 55
Sales 3.6
45.6
37.5
Moderate Decrease
12.5
Strong Decrease
0.8
0
10
20
30
40
50
60
Profits Strong Increase
2.4
Moderate Increase
United
States
Sales and Profits Expectations versus Prior Quarter 43.6
Moderate Decrease
65
17.7
Strong Decrease
1.2
60
10
20
30
40
50
60
Index 0
Hiring Plans Strong Increase
2.0
30.2
54.4
20
30
40
50
60 Capital Expenditures Strong Increase
2.8
25.0
Moderate Increase
56.4
No Change
Moderate Decrease
11.3
Strong Decrease
4.4
0
10
54.9
50
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
1.2
10
55
40
12.1
0
59.7
45
No Change
Strong Decrease
Sales
Profits
Moderate Increase
Moderate Decrease
Most Firms See Sales and Profits Stable or Increasing Echoing positive consumer sentiment, sales forecasts continue to be optimistic, although the index is down slightly to 59.7. About half of firms expect sales to rise in the third quarter and another 37.5 percent anticipate no change from last quarter. The outlook for profits is positive but not quite as strong at 54.9—37.5 percent of firms forecast an increase and almost 44 percent anticipate level earnings, while about 20 percent expect a decrease. The state’s construction businesses are the most optimistic about both sales and profits this quarter, with readings above 65. All other industries also anticipate sales growth—the sales index is over 60 in manufacturing; wholesale trade; financial activities; other services; and transportation, information, and utilities. Healthcare panelists have negative profit expectations, but other industries all have a positive forecast. 35.1
No Change
20
30
Percent 2
45
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
No Change
51.4
35
Q3 2014 compared to Q2 2014 Moderate Increase
Alabama
50
40
Industry Performance Expectations Strong Increase
59.4
40
50
60
From the ABCI Panelists Poll (Nov.‐Dec. 2013):
What are the top issues facing Alabama? Healthcare costs, programs, uninsured 48.1% Government policies, taxation, regulations 39.5% Quality of education; workforce development 34.6% Econ. growth/development, more small business 33.3% Weak job creation, better quality jobs, layoffs 28.4% Note: Panelists could enter multiple responses. Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama® | ABCITM
Capital Spending Outlook Weaker as Profit Forecast Slips Expectations for capital expenditures stayed positive, although the reading declined 1.1 points to 52.6. Most panelists (56.4 percent) anticipate about the same level of investment as last quarter. However, the net 12.1 percent forecasting an increase is down from the second quarter. Capital spending should see the largest increase in the transportation, information and utilities sector and in manufacturing and construction. Among metro areas, investment growth could be strongest in Montgomery; Huntsville panelists continue to expect a modest decline. ABCITM History: Edging Back Up 70
68.7
65
60
Index Uptick in Hiring Prospects Welcome Sign Alabama’s economy has struggled with job creation, registering annual gains under one percent over the last two years. And job growth during the first six months of 2014 is below the comparable period a year earlier. That trend could be changing if ABCI panelists are correct in their expectations. The hiring index jumped 3.8 points to 54.9 on the third quarter survey. That’s the highest reading since a 57.6 eight years ago in third quarter 2006 and much better than the value of 50 a year ago. While 32.2 percent plan to increase hiring this quarter, only 13.3 percent forecast a decrease, and 54.4 percent expect no change. All industries except retail trade plan to ramp up hiring in the third quarter. Job gains could be strongest in construction; manufacturing; and transportation, information, and utilities. Outlooks for job creation are solidly positive in the state’s four largest metro areas. 55.5
55
50
45
40
35
31.5
30
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Most Industry Outlooks Better for the Third Quarter Sentiment improved markedly in construction; health‐ care; and professional, scientific, and technical services compared to the second quarter. Panelists in construction are the most optimistic industry group, but a 5.0 point gain just brought healthcare expectations to flat. Outlooks in manufacturing and in transportation, information, and utilities edged up slightly and remained broadly positive. While financial services should perform moderately better, all industry indicators slipped from their second quarter levels. Retail trade firms continue to indicate scaling back capital investment given weak profits. ABCI by Industry, Third Quarter 2014 Hiring and Capital Expenditures 56
54.9
54
Index 52
52.6
50
48
Hiring
46
44
Q3 2014 Change from
Q2 2014 Construction 63.8
4.4
Manufacturing 58.0
0.2
Transportation/Information/Utilities 57.6
0.5
Wholesale Trade 53.3
-1.8
Retail Trade 48.8
2.1
Finance/Insurance/Real Estate 56.6
-3.4
Professional/Scientific/Tech Services 52.8
3.8
Healthcare Services 50.0
5.0
All Other Services 55.8
-2.7
Expectations versus Prior Quarter Capital Expeditures
42
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013 2014
Industries in Depth, Third Quarter 2014 Component Index Construction Manufac. Transp./Info./
Utilities Wholesale
Trade Retail
Trade Fin./Insur./ Real Estate Prof./Sci./ Technical Healthcare All Other
Services Sales 67.3 63.2 61.1 60.7 52.5 61.0 54.0 51.4 62.5 Profits 65.4 56.2 55.6 51.8 52.5 57.0 53.4 44.4 55.4 Hiring 65.4 57.6 56.9 51.8 50.0 53.5 52.8 52.8 55.4 Capital Spending 57.7 58.3 61.1 48.2 50.0 54.5 50.0 44.4 48.2 Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama® | ABCITM
3
ABCI and Component Indexes by Area, Third Quarter 2014 Metro Areas Alabama Birmingham Huntsville Mobile Montgomery National Economy 51.4 53.8 50.0 49.3 53.8 Alabama Economy 59.4 59.4 58.8 60.3 62.8 Industry Sales 59.7 61.8 56.8 61.0 61.5 Industry Profits 54.9 56.1 52.0 54.4 57.7 Industry Hiring 54.9 56.1 54.2 55.2 57.0 Capital Expenditures 52.6 54.2 48.4 52.9 60.9 ABCI 55.5 56.9 53.4 55.5 59.0 Optimism Remains Highest at Businesses Employing 100+ Confidence among the state’s large firms edged up 0.8 points to 57.9 on the third quarter ABCI survey. These businesses are the most positive on every component of the ABCI this quarter. Their outlook for the Alabama economy climbed 2.4 points and forecasts for profits and hiring strengthened. About 35 percent expect to boost hiring, while 53.2 percent foresee continuing the second quarter pace. Over half expect profits and sales to rise. Outlooks among large firms are positive in every industry. Alabama’s midsize businesses, employing 20 to 99, registered an ABCI of 52.8 this quarter, down 1.2 points for the weakest outlook among the three size groups. These firms see policies at the national level as generally a negative for their business. Job creation should be the bright spot—the hiring indicator is up 5.8 points to 54.4, with 36.5 percent planning to increase hiring. Small business confidence slipped 0.6 points to 54.8. Both small and midsize firms saw declines in indexes for sales, profits, and capital spending. Hiring should pick up, with the index up 4.1 points to 53.8 and 24 percent planning an increase. Montgomery Metro on Top, Huntsville Most Improved Hiring is expected to pick up in all four large metros in the third quarter—the indexes showed solid improvement and indicate widespread moderate job gains. Business confidence was highest in Montgomery again this quarter, with the area ABCI up 0.2 points to 59.0. Montgomery is the most optimistic on outlooks for the Alabama economy and for industry profits, hiring, and capital investment. Birmingham‐Hoover optimism ranked second with the ABCI about the same as last quarter at 56.9. Area expectations for the U.S. and Alabama economies improved. Mobile business sentiment registered a state‐average 55.5. While confidence fell back 2.8 points, all industry indicators are positive for the third quarter. Significant improvement in the Mobile hiring outlook, up 3.4 points to 55.2, suggests a welcome turnaround from recent monthly job losses. ABCI Huntsville remained positive this quarter, climbing 2.7 points to 53.4. Although all indicators turned up, capital spending could continue to be curtailed. The Huntsville hiring index saw the largest improvement and a third of area panelists report plans to increase hiring. ABCI and Component Indexes by Firm Size, Third Quarter 2014 Number of Employees 0 to 19 20 to 99 100 and over National Economy 51.6 46.3 55.0 Alabama Economy 60.1 56.1 60.9 Industry Sales 58.2 58.1 62.0 Industry Profits 52.8 51.7 59.0 Industry Hiring 53.8 54.4 56.1 Capital Expenditures 52.5 50.3 54.3 ABCI 54.8 52.8 57.9 The Center for Business and Economic Research extends its sincere thanks to the 248 Alabama business executives who completed the third quarter 2014 ABCI survey during the first two weeks of June. This report from the 51st consecutive quarter of the ABCI survey would not be possible without your participation! Be sure to log in from September 1‐15 to record your opinions about economic prospects and industry performance looking ahead to the fourth quarter of 2014. Analysis provided by Carolyn Trent, Socioeconomic Analyst, Center for Business and Economic Research, The University of Alabama. For more details on the Alabama Business Confidence IndexTM, visit cber.cba.ua.edu/ABCI For information on the Center for Business and Economic Research, visit cber.cba.ua.edu 4
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama® | ABCITM